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Wednesday, April 28, 2010

Portland's Euro dreams coming true

The City of Roses is becoming more continental every day, it appears:

"The issue is rollover risk," said Jonathan Tepper of Variant Perception, a research group based in London and known for its bearish views on Spain. "Spain has to issue new debt plus roll over existing debt to the tune of 225 billion euros this year. Forty-five percent of their debt is held by foreigners so they are dependent on the kindness of strangers."

Countries the world over sell bonds, which help cover the costs of things like social services and government workers' pay. In developed countries, this debt is considered relatively safe because governments can raise taxes or fees to pay their debts. But government revenue has dropped sharply during the recession, and levying higher taxes risks further slowing the economy.

With European budget deficits worsening, investors are now worried that — like American homeowners who borrowed too much in the last decade — some countries may have a hard time paying off their debts....

It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts. As part of the euro zone, these countries do not have the ability to print their own money to stimulate growth and bolster exports, so increasing debt and an increasing prospect of default result....

Predicting where and when the next ripple will be felt is an inexact science. During the Asian crisis in 1997, Russia’s debt default took the world by surprise.

Some even worry that the next debt crisis may materialize closer to home — in the United Kingdom or even the United States, where budget deficits and debt burdens are growing. Both countries are now issuing debt at reasonable levels of 4 percent. The long run of cheap financing may be coming to an end, though, even for the most creditworthy countries.

But hey, let's have the city go further into hock to buy the Main Post Office for double its value! It will be just like Barcelona!

Comments (4)

Funny, they are worked up because Greece has a deficit = 110% of GDP. Hate to say this, but US deficit = 90% of our GDP.

If interest rates kick up, rollover debt will be a bear. That much less for schools, police, potholes and PERS (erm, forgot myself PERS is guaranteed.)

"But government revenue has dropped sharply during the recession and levying higher taxes risk further slowing the economy" [and they should add] "...and civil unrest if not shock and awe revolution."

Tick tick tick...

Maybe it's time to start thinking about some of those "credit risk" bets on the City of Portland's debt. The City Auditor appears to be yet another do nothing bureaucrat collecting a fat salaty and flying under the public radar. And Sam and Randy continue to dream up new ways to spend money by the day. This doesn't look good long term folks..............

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